An Auditor Established a $60,000 Tolerable Misstatement for an Asset

question 680

Multiple Choice

An auditor established a $60,000 tolerable misstatement for an asset with an account balance of $1,000,000. The auditor selected a sample of every twentieth item from the population that represented the asset account balance and discovered overstatements of $3,700 and understatements of $200. Under these circumstances, the auditor most likely would conclude that:

• A) There is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement because the total projected misstatement is more than the tolerable misstatement.
• B) There is an unacceptably high risk that the tolerable misstatement exceeds the sum of actual overstatements and understatements.
• C) The asset account is fairly stated because the total projected misstatement is less than the tolerable misstatement.
• D) The asset account is fairly stated because the tolerable misstatement exceeds the net of projected actual overstatements and understatements.

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Definitions:

Calcium

A chemical element with the symbol Ca and atomic number 20, an essential component of bones, teeth, and shells, and plays a crucial role in cell signalling.

Chlorine

A chemical element with symbol Cl and atomic number 17, known for its strong oxidizing properties and use as a disinfectant.

Lewis Dot Structure

A diagrammatic method to represent the valence electrons of atoms within a molecule, indicating the bonding between atoms and the lone pairs of electrons.

Covalent Bonding

The chemical bonding between atoms through the sharing of electron pairs to achieve stability.